Answered: make regular equal payments to repay…

Cornerstones of Cost Management (Cornerstones Series)

4th Edition

ISBN:9781305970663

Author:Don R. Hansen, Maryanne M. Mowen

Publisher:Don R. Hansen, Maryanne M. Mowen

Chapter19: Capital Investment

Section: Chapter Questions

Problem 8E

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Question

Jim loans Frank $35,000 today. Frank agrees to make regular equal payments to repay the loan. The payments will be semi-annual for 10 years with the first

payment in 6 months. The interest rate on the loan is i(2) = 8%. When Jim receives

Frank's payments, he immediately deposits them into a second fund. The interest

rate earned on the second fund is i(2) = 7%. After 10 years Jim cashes in his second

investment. Calculate the final yield rate earned by Jim on his initial $35,000 investment.

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